Is it time to re-evaluate how
the federal terrorism backstop works?
It took the dreadful cost of the September 11 attacks to convince
the federal government to take a role in helping the property/casualty
business maintain coverage for losses caused by terrorist attacks.
By Joseph S. Harrington, CPCU
There’s not much agreement among our two major political parties on Capitol Hill these days. Consensus seems to be limited to Mom, apple pie, and the federal terrorism reinsurance backstop.
It took the dreadful cost of the September 11 attacks to convince the federal government to take a role in helping the property/casualty business maintain coverage for losses caused by terrorist attacks. The response was the Terrorism Risk Insurance Act (TRIA), which established a program for the U.S. Treasury to provide liquidity to help cover exceptionally large terrorism losses. (TRIA outlays are to be recouped by assessments on commercial insurance policies, so the program technically does not provide re/insurance.)
The effective if unspoken point of TRIA is to maintain existing commercial coverage for fire, explosion, and other perils, plus any attendant liabilities, caused by strategic actors seeking vulnerabilities. The program seeks to assure seamless compensation through the private insurance market, without having to wait for public appropriations following an attack.
First enacted by Congress in 2002, TRIA has been renewed several times since with greater or lesser modifications. Encouraged by insurance trade associations, members of both parties are now lining up to seek a “clean” renewal before it expires in 2027. Current draft legislation would extend the program dates and increase the amount of damage needed to trigger coverage but require no revisions to policy forms or disclosures.
Meeting or missing the mark
Okay, so far, so good—if only we knew what Anthony Quinn Warner was really up to.
Warner was the man who detonated a bomb in Nashville, Tennessee, on Christmas Day 2020, killing himself and causing property damage but deliberately injuring no one else. As we consider a reauthorization of TRIA, it helps to review the FBI’s conclusions regarding the incident:
“ … detonation of the improvised explosive device was an intentional act in an effort to end [Warner’s] own life, driven in part by a totality of life stressors …
“ … Warner specifically chose the location and timing of the bombing so that it would be impactful, while still minimizing the likelihood of causing undue injury. The FBI’s analysis did not reveal indications of a broader ideological motive …”[1]
In short, Warner wasn’t trying to kill anyone but himself and he wasn’t trying to make a political point. So, was his act “terrorism”? The damage wasn’t great enough to trigger the question under TRIA’s terms, but it could have been, and insureds, agents, and brokers may not have been satisfied with the answer.
Under the most recent renewal in 2019, two things must happen before coverage under TRIA is triggered:
- An attack or series of related attacks has to cause damage exceeding specified amounts; and
- Three federal cabinet secretaries[2] have to certify that the act(s) meet TRIA’s definition of terrorism, paraphrased as:
- A violent act or an act dangerous to human life, property, or infrastructure …
- … that causes damage within the United States or under U.S. sovereignty (to a U.S. embassy, airplane, ship, etc.) …
- … committed in an effort to coerce the civilian population of the U.S. or the policy or conduct of the U.S. government.
If it came to certification, Warner’s act would meet criteria number one and two, as it was clearly “dangerous … [to] property or infrastructure,” even as he sought to spare human life (other than his own). For practical purposes, TRIA’s definition of “terrorism” extends to acts we might previously have called “sabotage.”
What did the dead intend?
As for criterion number three, having investigated Warner’s life up to the incident, the FBI is confident he was not attempting to coerce or influence Americans or their government. Presuming the cabinet secretaries agreed with that finding, the act would not have been certified as an act of terrorism, no matter how great the damage was.
But how do we know for sure? Warner was dead and unable to vouch for why he acted as he did, as is the case for many perpetrators we know or think we know to be terrorists.
What if Warner had been acting on behalf of a criminal gang seeking to drive patrons from a competitor? Would such an act, devoid of political meaning, constitute an attempt to “coerce the civilian population”? What if someone exploded a bomb and we simply don’t know who or why?
By relying heavily on a shared assessment of an attacker’s motivations, TRIA’s approach creates a potential gap in applying coverage that could result in a very unpleasant surprise at a very bad time.
There is an alternative approach: Apply the reinsurance backstop to intentional losses beyond a certain scope or scale, without regard to the motivations of the perpetrators, which are largely irrelevant to the victims. Such an approach would help assure stakeholders of the seamless recovery TRIA is designed to provide.
Perhaps insurers and members of Congress should not be in a rush to renew the program as is.
[1] “FBI Releases Report on Nashville Bombing,” FBI Memphis Field Office, March 15, 2021; accessed at https://www.fbi.gov/contact-us/field-offices/nashville/news/fbi-releases-report-on-nashville-bombing
[2] The Secretary of the Treasury, the Secretary of State, and the Attorney General.
The author
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P&C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.
